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Economist: Rauner’s pension plan doesn’t add up

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* The Tribune shines some belated light on Bruce Rauner’s 401(K) proposal for public employees…

In his successful campaign, Rauner spoke generally about wanting to shift public employees from receiving a defined pension benefit into becoming members of a defined contribution plan similar to a 401(k)-style system.

Rauner has said public workers should be able to keep the benefits they have already accrued, but, moving forward, go into a defined contribution system. He also has said public safety workers should stay in the current system. And, with 80 percent of public employees not eligible to receive Social Security, Rauner has said he favors some unspecified plan to create a retirement safety net.

But it’s unclear whether Rauner’s concept is constitutional, as he maintains, or how it would address the current unfunded pension liability since payments would go into a new retirement system rather than address the shortfalls in the current system.

“Not only does it not solve the problem, but it makes it worse in the near term,” [Richard Dye, an economist on the faculty of the Institute of Government and Public Affairs at the University of Illinois] said. “Whatever the solution is will cost something, and I don’t know how it would be implemented. It’s hard to add (Rauner’s concept) up as a fiscal benefit for the state.”

posted by Rich Miller
Wednesday, Jan 7, 15 @ 10:49 am

Comments

The Tribune Editorial Board=Profiles In Courage, said no one ever.

Comment by Concerned Wednesday, Jan 7, 15 @ 10:53 am
@FakeStatehouseChick - See, I told you Rauner’s numbers don’t work #CantEraseTheEndorsementTho

Comment by Oswego Willy Wednesday, Jan 7, 15 @ 10:55 am
Dye is probably right that it’s more costly in the short term. I can see how it would be a savings in the long term. However, an economist who makes a blanket statement without any kind of facts, data or simple math behind it seems a little lazy and not newsworthy.

Comment by Ahoy! Wednesday, Jan 7, 15 @ 11:01 am
Time to defund the Institute

Comment by in the know Wednesday, Jan 7, 15 @ 11:05 am
I think Mr. Rauner needs to do some legal research or get some new legal advice. Here are summaries from Westlaw of some Illinois Supreme Court rulings that basically say that after the 1970 Illinois Constitutional Convention, the public pension in place when one is hired, is the pension that person is entitled to.

“Under pension clause in Illinois Constitution, pension participant is entitled to public employee pension based on status of system when his rights in system vested, either at time he entered system or when clause became effective, whichever is later. Bosco v. Chicago Transit Authority, N.D. Ill.2001, 164 F.Supp.2d 1040″

“Pension rights vest when public employee enters pension system or when the Illinois Constitution of 1970 became effective in 1971, whichever is later. Thompson v. Retirement Bd. of Policemen’s Annuity and Ben. Fund of City of Chicago, App. 1 Dist.2008, 318 Ill.Dec. 640, 379 Ill.App.3d 498, 884 N.E.2d 195″

“Purpose behind the pension protection clause for public employees was to provide public employees with a basic protection against abolishing their rights completely or changing the terms of their rights by reducing their benefits after they had already embarked upon employment. Miller v. Retirement Bd. of Policemen’s Annuity, App. 1 Dist.2001, 264 Ill.Dec. 727, 329 Ill.App.3d 589, 771 N.E.2d 431″

Comment by Joe M Wednesday, Jan 7, 15 @ 11:07 am
The bad news was that Quinn lost.
The good news was that Rauner won.

OK, Bruce. Shake it up!

Comment by low level Wednesday, Jan 7, 15 @ 11:10 am
Rauner didn’t have a plan. He had ideas.

Comment by Aldyth Wednesday, Jan 7, 15 @ 11:10 am
A shocking revelation considering that all Tier 2 participants in TRS are basically subsidizing state government to the tune of about 3% of their salary. In other words once the state puts 1 penny into a DC plan it will cost the state money. Hey Tribbies just because you got your pension ripped out from underneath you does not mean everyone should.

Comment by Obama's Puppy Wednesday, Jan 7, 15 @ 11:11 am
ahoy, this isnt a research paper authored by dye. it is a trib essay that used a statement by dye to help legitimate their position.

Comment by Langhorne Wednesday, Jan 7, 15 @ 11:12 am
“Not only does it not solve the problem, but it makes it worse in the near term.”

Whodduhthunkit?

– MrJM

Comment by MrJM (@MisterJayEm) Wednesday, Jan 7, 15 @ 11:12 am
This is a constitutional issue. The incoming governor needs to understand that this issue has conditions placed upon it. Please stop wasting valuable time chasing after it. Any political solution will need to meet constitutional restrictions that aren’t political.

Citizens have the right to work for their governments. They have the right to be paid for those services, regardless of the government’s desire to pay. Citizens are protected from having their public service careers abused for political reasons. Other states do not allow their politicians to tamper with their public servant’s pensions at all, which is what was needed to have put into place here in Illinois. Consequently, they are not dealing with similar pension problems as we are because they didn’t short change or ignore them as we had.

The problem isn’t the pension. The problem was the politicians thinking they could take from the pension fund and pay it back later without any problems. They were wrong. They took so much for so long they created our current problem. That problem will not be resolved by striking any political deals among those who were too shortsighted and stupid to have created it originally.

Sorry Mr. Future Governor, but you cannot allow to tie state pensions to market products, even if you believe that they will permit quicker growth, because they are not stable products. The moment they lose their value, which is a natural and normal marketing event, they essentially take from the pension fund - which is unconstitutional.

Bite the bullet and stop hoping for a magic one. It is not there. Look for your $2 Billion tax revenue loss elsewhere. You sir, might be a financial billionaire, but when it comes to our constitution and our citizen rights, your world doesn’t coexist with it.

You are a governor now. Shift gears and get with it.

Comment by VanillaMan Wednesday, Jan 7, 15 @ 11:12 am
woops, those case summaries I posted were from a federal district court, and two Illinois appellate courts - not the Illinois Supreme Court. None the less, they do set some legal precedent.

Comment by Joe M Wednesday, Jan 7, 15 @ 11:13 am
Ahoy, it was all spin. A switch to a 401K going forward doesnt get you out of the obligation to pay back the money already borrowed from the pension systems.

Thats what the whole pension “reform” effort was all about; trying to wiggle out of paying back borrowed money. The focus on “luxurious” benefits was a con.

Comment by Wordslinger Wednesday, Jan 7, 15 @ 11:13 am
Never mind the details and the actual challenges, Bruce is going to shake up Springfield!

Comment by slow down Wednesday, Jan 7, 15 @ 11:14 am
Tier 2 employees are net contributors to the system, essentially subsidizing Tier 1. Given the option, most Tier 2 employees would move to a 401k. This wouldn’t help the shortfall, but it might “starve the beast” and that may be Rauner’s intention.

Comment by AC Wednesday, Jan 7, 15 @ 11:17 am
Thank you Vanilla Man. There are many, many teachers who go above and beyond and are outstanding. Just to name one example.

And I, for one, and am happy to pay them now…and in retirement.

Comment by Del Clinkton Wednesday, Jan 7, 15 @ 11:19 am
Basically it seems that the Institute is saying that they don’t have the numbers to evaluate at this point, but they’re drawing conclusions anyway.

Current employees are in the system, and it’s becoming clearer that any attempt to bifurcate them from it won’t be held up in court.

That leaves only two options;(1) minimizing pension obligations to new employees to the lowest amount allowed by law and (2) taking measures to minimize the basis of the pensions (last four years in TRS) for which the state will be liable. Currently the pensions get “spiked” to be unfairly high through end of career bumps given by local schools and municipalities. This needs to changed from a “spike” to a “valley” through state disincentives to schools and municipalities for doing this, most likely having them pick up all state pension obligations throughout the life of the pensions resulting from such policies.

The constitution prevents the state from “raising the bridge”. The only remaining option for fairness and solvency is freezing senior pension basis well before reaching the basis years, or providing cost shifting mechanisms for employers wishing to still provide pension benefits disporportionately high compared to lifetime contributions.

Comment by Arizona Bob Wednesday, Jan 7, 15 @ 11:21 am
Nothing or very little Rauner says adds up. Why should anyone be surprised? He more than doubled down on tax cuts and spending increases, and we bought it.

I am hoping that Rauner casts aside his campaign of lies and evasion and governs sensibly and responsibly.

I read bits and pieces on the alleged higher cost of 401(k) type plans to taxpayers, but I haven’t pored into it. I do know that workers can lose a lot of money in defined contribution plans when the markets crash.

As much as we need fiscal reform, we don’t need further degradation of the middle class. What good is it if thousands of state workers join private sector workers in greater retirement insecurity? How will major retirement income decreases for thousands of state workers benefit poor and middle class workers as a whole? What happens if the markets crash, sink, are stagnant, etc? These I believe are some of the questions we should ask.

Comment by Grandson of Man Wednesday, Jan 7, 15 @ 11:24 am
It doesn’t take an economist to figure out that if you take away the revenue, the debt doesn’t go away and the problem gets worse.

Blago shook up Springfield too and we’re suffering for it. I’m not hearing any solutions from our new savior that give me confidence that this shaking will do anything but break more things.

Comment by Norseman Wednesday, Jan 7, 15 @ 11:25 am
A small add, if we did 401k style benefits the employer would have to make its side of the contribution, otherwise this wont work. But we can just mandate that the employer has to make its share of the contribution now under the defined benefit plan and get the same fix.

The problem is not that the benefits outstrip the contributions, the problem is the state didnt make the employer contributions. So a different vehicle is not a solution. Also defined benefit plans outperform 401ks and do not subject the employees to such market volatility. The plan gors on forever unlike a 401k which varries in strategy and investments based i. How close you are to retirement.

Comment by Ghost Wednesday, Jan 7, 15 @ 11:27 am
First, you can’t force current employees into a 401K-like plan. I suppose you could present it as an option, but any effort to coerce employees into taking that option (ie no more raises unless you opt out of the current pension) is illegal, and, frankly, any current employee that accepts an inferior 401K to the current pension is less than the brightest bulb in the pack.

Clearly, ideology is trumping logic, if Rauner is actually serious about this “plan”.

Kudos to the Trib for pointing that out, albeit post-election.

Comment by PublicServant Wednesday, Jan 7, 15 @ 11:31 am
No change to any current employees or retirees unless for current employees it is part of a negotiated process which has salary, work conditions, higher contributions, etc. in exchange for something else. I think the more employees hired into tier II the better. 401K for new employees leaves a lot more dollars for the state to come up with

Comment by Anonymous Wednesday, Jan 7, 15 @ 11:37 am
A 401(k) instead of a pension might be a rational choice for an employee who does not intend to make a career out of public service and wants to work for only a few years. Wouldn’t the State have to pay Social Security benefits for its employees if it shifted to 401(k)? How can Rauner’s math even begin to add up if Social Security must be paid off the top every year?

Comment by anon Wednesday, Jan 7, 15 @ 11:44 am
It is so painful to watch politicians and commentators from across the political spectrum contort themselves and engage in doublespeak to avoid saying, “we need to raise taxes.” We all know that we need revenue to operate the state and contribute to pension funds. Revenues come from taxes.

The politicians who dug this budget hole by stealing benefits from state employees need to step up and to the right thing. Raise revenues through increased taxes. It is the only honorable and ethical thing to do.

Comment by Phlegm640 Wednesday, Jan 7, 15 @ 11:45 am
If employees are switched to a 401K plan, isn’t there a Federal standard that has to be met or the employees would need to be put back on Social Security as well? How would this save the State anything if they have to make a Social Security payment as well as a 401K payment? How would this work?

Comment by Huggy bunny Wednesday, Jan 7, 15 @ 11:45 am
My sense is that an early retirement incentive is in the cards. Perhaps allow some current higher paid tier I employees (most of which might be from the prior two administrations) to buy in years in exchange for a resignation? This would allow Rauner to replace these tier I with his tier II in addition to an influx of cash into the pension system.

Comment by Stones Wednesday, Jan 7, 15 @ 11:49 am
Gov. to be Brucie Loosey Goosie seems to view governing like being a vulture capitalist…he can take over the state, ditch the bad assets, take out all the money, and then sell it or take it into bankruptcy…and leave.

Comment by D.P.Gumby Wednesday, Jan 7, 15 @ 11:51 am
Currently the pensions get “spiked” to be unfairly high through end of career bumps given by local schools and municipalities.

Nonsense! There is nothing artificial about being paid a higher salary in a higher grade level. If you have earned the right to become a principal in a school, you should be paid a principal’s wage. What you are seeing as a “spike” is little more than earning an honest public servant wage based on experience and skill.

You of all people understand that people grow from earning a minimum entry level wage through to their retirement. Yet you somehow think someone is “spiking” their last years of work in order to attain a bigger retirement? You, of all people should recognize this. You don’t force a retiree into some economic miasma in order to satisfy your holistic approach of averages to their lifetime of earnings. If you want to knock off that “spiking”, then you will need to knock off the cost of living as well. No one should be penalized because you can’t wrap your ideology around retirement wages, when you seem so capable of doing when debating minimum wage issues.

Worse, you are alluding to the possibility that those “spiking” are playing a game. That’s a page right out of the Rod Blagojevich, “I hate state workers” playbook. Don’t go there. No one is questioning your job performances when contacting the Social Security office, and you shouldn’t do it by claiming there is some kind of Blagojevichian conspiracy pushing undeserved citizens into higher salary levels in order to “spike” their retirement.

Glad you put it in quotes, because you are coming off rather insulting.

Please define what you are trying to suggest here, because after years of hearing this line of bull crap from my fellow conservatives, I’m a bit sick of swallowing it.

Comment by VanillaMan Wednesday, Jan 7, 15 @ 11:54 am
“providing cost shifting mechanisms for employers wishing to still provide pension benefits” You mean things like, charging health insurance premiums? (Already ruled Unconstitutional)

“and we bought it.”
We? (sorry, just had to snark that one.)

Comment by Skeptic Wednesday, Jan 7, 15 @ 11:55 am
To clarify some misconceptions:

While it is true that on average Tier 2 employees are net positive for the system (based on current assumptions), that is only because those assumptions include decrement rates which realize many of those Tier 2 employees won’t work long enough to vest and qualify. Those that do vest will, on average, be a net loss to the system and would require some state contribution (just a much smaller net loss than a Tier 1 retiree).

Some that don’t intend to work for the State for long enough to vest, would generally be better off in a 401k type plan (assuming the market averages some gain during their employment).

It makes no sense to me to create a 401k type plan for new hires, it would make much more sense to put them in SS and simply close the plan if that is the path you are looking at.

Comment by Name/Nickname/Anon Wednesday, Jan 7, 15 @ 11:55 am
Putting employees into 401Ks (which would necessitate Social Security payments, as well) does NOTHING to relieve the budget. In fact it’s more expensive than the DB plan in place. There is no getting around the fact that this deficit created solely by pilfering from employees retirement funds has to be paid back. There is no cheap way out of paying the debt back other than new revenue sources. We’ve all gotten away with paying less and getting more, courtesy of our public servants retirement funds. Face reality. Thank God for the constitution.

Comment by Anonymous Wednesday, Jan 7, 15 @ 11:56 am
tier II participants are a cash cow for the pension system. Taking that away would make matters worse. There is nothing wrong actuarially with Illinois Defined benefit program other then the fact that it must be properly funded….da.

Comment by Anonymous Wednesday, Jan 7, 15 @ 11:57 am
He is regurgitating a half-baked proposal touted by the Illinois Policy Institute. Like most IPI reports/ideas, it is flawed, slanted, and won’t provide the budget relief sought after. As many have said, a DC plan will not provide any short-term savings, rather taking multiple decades to generate savings.

Switching to a DC plan is just a short-sided facade plan to “attempt” to strengthen the retirement systems, but in actuality it is intended to continue the war against public sector employees by shifting all the market risk onto them while lining the pockets of DC providers who are very politically active and in bed with the conservative movement.

IPI was somehow able to convince multiple legislators clueless to the subject matter to file such legislation, and now it seems they will have a much more powerful proponent.

Comment by Dirt Diver Wednesday, Jan 7, 15 @ 12:10 pm
Hmmm! A study done by an economist directly impacted by Rauner’s proposal and it shows it will not work. Well, call me shocked and surprised by this biased study.

Comment by Apocalypse Now Wednesday, Jan 7, 15 @ 12:17 pm
Hey Name @ 11:55 am, you do realize that TRS has stated that T2 employer normal cost is negative right? In addition, T2 can’t retire until age 67 (without penalty), member contribution stayed the same, and AAI only increases at 1/2 CPI.

Also, by closing it down to new members, the state will have to pay the void created by the lack of member contributions from these members prohibited from the system, and pay a bigger contribution to cover the SS employer match.

Arm-chair actuaries are dangerous.

Comment by Dirt Diver Wednesday, Jan 7, 15 @ 12:18 pm
The reason there is no short-term savings is the cost of the 401k-like system added to the need to continue pension funding. The state would either have to pay FICA at 6.2% up to $118,500 (employee pays this too.) I am little more rusty on this part, to avoid FICA they could match the employees’ contribution at a rate up to 7.5% of their wages. This is why no short-term savings. When pushing 401K-type plan in Ohio, that state was offering a 25% match to new employees.

Comment by 100 Miles West Wednesday, Jan 7, 15 @ 12:19 pm
Public safety workers are more special and deserving of a pension than civil engineers, budget administrators, plow drivers, nurses, case workers how?

Comment by Shemp Wednesday, Jan 7, 15 @ 12:19 pm
Stones, an ERI wouldn’t result in resignations. It would add retirements! One of the issues with the current system is the outdated retirement ages used. Many State employees can retire at 55 if they have enough years in, although they usually don’t have enough years in at that age to pull a full pension. They usually do have enough years for the healthcare, though.

No way, because of finances OR optics, will there be an ERI.

Comment by PolPal56 Wednesday, Jan 7, 15 @ 12:26 pm
Stones we are still paying for the last early out.

Comment by Give Me A Break Wednesday, Jan 7, 15 @ 12:27 pm
To all the idiots criticizing Richard Dye for his comments, explain how the 401(K) plan will save the state money in the short term.

Comment by Norseman Wednesday, Jan 7, 15 @ 12:29 pm
- Joe M - Wednesday, Jan 7, 15 @ 11:13 am:

The relevant ISC cases are listed in Eric Madiar’s “Welching” analysis.

Comment by RNUG Wednesday, Jan 7, 15 @ 12:30 pm
-Ghost - Wednesday, Jan 7, 15 @ 11:27 am:

Unfortunately, the current legislature can’t obligate future legislatures. If it could be done, it would require a Constitutional amendment.

Comment by RNUG Wednesday, Jan 7, 15 @ 12:31 pm
- Huggy bunny - Wednesday, Jan 7, 15 @ 11:45 am:

Yes, there is a Federal minimum … and some people that have analyzed the Tier II structure believe it will not meet that standard in a few years, let alone a 401(K) style (actually a 457) plan.

Comment by RNUG Wednesday, Jan 7, 15 @ 12:32 pm
@Apocalypse Now - Thanks for the drive by. Care to explain how Bruce’ll “move” existing employees to a 401K plan, and how that will save money short and long term, while still paying back the debt with interest at market rates? Thanks.

Comment by PublicServant Wednesday, Jan 7, 15 @ 12:33 pm
- Stones - Wednesday, Jan 7, 15 @ 11:49 am:

An ERI will actually make the pension obligation worse because it will start the payout sooner, plus you still have the health insurance obligation. The only potential savings is to the salary line of the GRF, but the 2002 experience did not show a total net savings to the State when all the factors were considered.

Comment by RNUG Wednesday, Jan 7, 15 @ 12:33 pm
Vman, You and I see “spiking” entirely differently. Superintendents and school boards whipped up this agreement that if you give a 20 or 30 or 50% increase for a couple of years, then the fatter pension would forever be the super’s reward and the bill would go to someone else. The teachers found out, brought it to the bargaining table, and in the late 70’s it was limited to 20% three times.
That’s the origin of “spiking” as I understand it.
Later, about 10 years ago, Madigan forced a reduction to 6% per year.
The concept creates a funding issue because where the pension systems assume raises per year and anticipate them for the length of the career, when the rate of increase goes nuts at the end, the system is paying a rate different than the 30 years of history would have anticipated.
Its a contributor to underfunding, but tiny compared to the history of holidays and underfunding.

Comment by countryboy Wednesday, Jan 7, 15 @ 12:37 pm
As others have stated, switching to a 401k (actually it would be a 403b) for public employees will require participation in Social Security which would likely require a higher contribution by both the State and the employees for current retirement systems such as TRS not currently paying into Social Security.

One thing that I do not see mentioned is what happens if the State fails to make the required contributions according to the statutes enacted in establishing a defined contribution plan. In defined benefit plan, the shortfall can be calculated. Since defined contribution plans generally provide options for employees to manage the investments in their plan, no two plans are the same. It would be virtually impossible to calculate the losses to each employees account when and if the State failed to make the required contributions.

Comment by Anonymous Wednesday, Jan 7, 15 @ 12:39 pm
If tier2 employees are net contributors to the retirement system, why is there such a movement to go with consultants rather then new hires. It seems like you are paying more in the short term (consultants salary + plus the consultant firms fee) and shorting the system in the long term. I’m sure I am missing something in this equation but I’m not sure what.

Comment by Milootis Wednesday, Jan 7, 15 @ 12:41 pm
- Milootis - Wednesday, Jan 7, 15 @ 12:41 pm:

Consultants have a higher short term cost but you are not “baking in” the “permanent” benefits like health insurance and future salary … plus it has the political / public relations benefit of keeping the reported headcount low.

Comment by RNUG Wednesday, Jan 7, 15 @ 12:45 pm
If teachers end up in Social Security, it will be the local districts (and teachers) who will have to pay. The local districts will be able to levy from an uncapped fund.

Comment by Pot calling kettle Wednesday, Jan 7, 15 @ 12:47 pm
@Dirt Diver

I do not suggest closing the plan, just saying that closing the plan is better than 401k.

And yes TRS Tier 2 is NC negative (based on current population and assumptions). The actuaries certainly can’t guarantee that is will always be NC negative. I believe it will eventually in 25 years be NC positive (I don’t think that is a bad thing).

Comment by Name/Nickname/Anon Wednesday, Jan 7, 15 @ 1:01 pm
I suspect the biggest motive behind this is to break the teachers union. What a shame.

Teachers have a more important place in our society, than bologna sandwich slappers in prisons. Wally World makes a bologna sandwich for under a buck. Outsource this work to them. Well, better hold on a second now. Isnt ObamaCare part of the Benefits Package at Wally World?

Comment by Del Clinkton Wednesday, Jan 7, 15 @ 1:01 pm
RNUG & Polpal -

Certainly no argument that the ERI I described would add employees to the pension roles. My logic is that the employee buy in (in effect purchasing years of service) would provide an immediate influx of much needed cash to help pay the pension obligation. Also replacing these employees with tier II (or a potential tier III)employees might make sense as we go forward. Not arguing the point as much as suggesting that I would like to see an actuarial study if it makes financial sense.

Comment by Stones Wednesday, Jan 7, 15 @ 1:02 pm
IPI suggests that they have a way to do a DC plan without SS, it is like SURS DC plan. Biggest problem is that they would still have to guarantee a SS level benefit. Another very stupid IPI idea.

Comment by Name/Nickname/Anon Wednesday, Jan 7, 15 @ 1:05 pm
Well this topic has certainly stirred the commenters up. There will be no “401(k) style system”. Rauner knew it before he ran and he knows it now. It’s simply campaign rhetoric designed to demonize public employees - “hey I can get by with a 401(k) why can’t they”. It also plays to the simpletons like Arizona Bob who think that all of governments problems can be solved by turning it into a business. There are a whole multitude of reasons from constitutionality to the trade-offs between state vs. federal pensions (social security) that most people don’t have a clue about.

Clearly the current approach has to be fixed. When it’s all said and done that will mean increased taxes. I don’t see the courts scapegoating the retirees because the legislators and governor failed in their fiduciary responsibilities. Blog commenters on the other hand are an entirely different matter.

Comment by pundent Wednesday, Jan 7, 15 @ 1:10 pm
Fine, it’s in the Constitution.

But putting this pledge in the Constitution, -without- giving current state workers a right to sue or block any raids on the pension funds, while they are happening, has now I think to rank as a really bad idea on the part of the Constitution makers.

Even if you think the Constitution should have a pension clause (I personally don’t), if it’s in there, there should be some kind of enforcement mechanism specified too so state lawmakers don’t get to ignore it for 10-15 years until it blows up in their faces.

Comment by ZC Wednesday, Jan 7, 15 @ 1:11 pm
===Another very stupid IPI idea.===

That’s a redundant statement.

Comment by PublicServant Wednesday, Jan 7, 15 @ 1:11 pm
Thanks for the reply RNUG. I always assumed that the public relations/headcount issue was the driving force behind the push for consultants.

Comment by Milootis Wednesday, Jan 7, 15 @ 1:11 pm
Whose left to early retire ?? The stampede already occurred.

Comment by Anotheretiree Wednesday, Jan 7, 15 @ 1:12 pm
I should have clarified my 1:11 pm comment above, “… until it blows up in somebody’s else face.” Unless you’re Mike Madigan I suppose.

Comment by ZC Wednesday, Jan 7, 15 @ 1:18 pm
=Rauner said his “preference is probably to wait until the Supreme Court rules, so we have some ground rules for what probably works and what won’t work. I think that’s a smarter way to do it.”=

Oral arguments for the pension case are in March. A decision would likely come a few months later. The AFSCME contract (SERS employees) expires at the end of June.

If the Supremes toss SB1, the timing seems pretty conducive for playing hardball over pensions, salaries, retiree health insurance and other benefits for the state employees covered by the AFSCME contract in the name of cost savings.

This also ties in with Rauner’s pledge to “shake up Springfield” and his statement that “those government union bosses can’t intimidate me.”

Comment by Sangamo Sam Wednesday, Jan 7, 15 @ 1:20 pm
- Stones - Wednesday, Jan 7, 15 @ 1:02 pm:

Here’s a short version example from the 2002 ERI … assumed long term coordinated SERS employee … you replace a $90K employee who had to pay 4% * 5 years = 20% = $18K into the pension system to immediately start drawing a (probable) $50K pension plus keeping a (roughly) $9K health insurance benefit and then add the cost of a replacement at $60K plus, say, $6K health insurance (allowing for partial employee payment). Cost before ERI = $96K (salary + partial insurance), cost after ERI = $125K ($59K for retiree plus $66K for replacement)

The pension system would get $18K in and have to shell out $50K the first year. Group health insurance would increase from about $6K to $15K when you count both the retiree no longer paying a share plus the cost for a replacement. The salary line item would save $30K the first year. But the State would experience a net increase in their cost of about $11K the first year, and in the second year it would be something like $29K since you would not have the one time offsetting pension contribution.

I didn’t even include the cost of buying out the retiring employee’s accumulated vacation / sick time, which could be a one-time expense as high as another $20K. Yes, I’m estimating things and mixing funds and budget line items … but in the end, it is all State / taxpayer money.

Comment by RNUG Wednesday, Jan 7, 15 @ 1:33 pm
Stones: Blago also offered a “deal” where an employee could resign and take their accrued benefits with them. The “plan” was met with a resounding thud.

Comment by Skeptic Wednesday, Jan 7, 15 @ 1:36 pm
ZC - The reason the constitution has a pension clause is because the framers didn’t trust the legislators and governors to be good stewards of the program. I have no idea why they would have thought that. It’s an incredibly cynical view.

Comment by pundent Wednesday, Jan 7, 15 @ 1:36 pm
The 401K was designed to allow people already well paid to increase the amount of their retirement. Unfortunately, the smarties at IPI and other places decided that 401K’s would be a better way of funding retirement for everyone not in the Executive Suite. The problem for most government workers is that their salaries are already less than those paid in the private sector. Furthermore, the great recession has shown that money put into a 401K can decrease as well as increase and that when you start your contributions has a great influence on your final outcome.

Thus, I cannot see any advantage to the teacher, salaried worker, or anyone else by going to the 401K. This would necessitate paying a stipend over and above the employee contribution as well as paying the state share of the SS tax, and both shall be paid. No holidays! The 401K is no panacea.

Comment by Old Sarge Wednesday, Jan 7, 15 @ 1:43 pm
pundent,

I get that but they apparently weren’t cynical enough to imagine that the legislators and governors would try and shift and shaft the day of judgment later in time to future legislators and governors. Does anyone think this is a -good- or superior outcome, this pension crunch the state now finds itself in? They should have made it so it forced the pols to good stewards, before the smashup.

Comment by ZC Wednesday, Jan 7, 15 @ 1:44 pm
We all saw that Rauner didn’t appear to be very good at math when he was talking about the budget during the campaign. He wasn’t any better at it with the pension issue either. Hopefully he’s gotten some remedial help in math before he begins his official duties of putting together a budget.

Comment by Demoralized Wednesday, Jan 7, 15 @ 2:04 pm
=== The reason the constitution has a pension clause is because the framers didn’t trust the legislators and governors to be good stewards of the program. I have no idea why they would have thought that. It’s an incredibly cynical view. ===

Great snark. The framers had decades of historical underfunding as evidence of the problem.

Comment by Norseman Wednesday, Jan 7, 15 @ 2:07 pm
Totally off subject…for retirees what is the AAI this year? The 3% or the one in the pension reform that will be overturned shortly (hopefully)?

Comment by illilnifan Wednesday, Jan 7, 15 @ 2:18 pm
@illilnifan - Wednesday, Jan 7, 15 @ 2:18 pm:

=Totally off subject…for retirees what is the AAI this year? The 3% or the one in the pension reform that will be overturned shortly (hopefully)? =

3% compounded is the law. Pension reform law was ruled unconstitutional.

Comment by Anonymous Wednesday, Jan 7, 15 @ 2:23 pm
@
illilnifan - Wednesday, Jan 7, 15 @ 2:18 pm:

=Totally off subject…for retirees what is the AAI this year? The 3% or the one in the pension reform that will be overturned shortly (hopefully)? =

I should add that the ISC has agreed to hear the states appeal of the lower court decision.

Comment by Anonymous Wednesday, Jan 7, 15 @ 2:25 pm
There us only one reason why some are in love with the idea of 401ks for public employees. Obviously, since social security would need to be paid in addition, there is no cost saving to the state. However, there is great gain to be made to those who manage those 401ks. Of course investment types would love to get some of that cash! Duh! In the meantime, we will do a million dances every-which-way to get out of paying back the debt owed to our workers’ retirement funds. Anything but that! And another important point. Since DB plans are so demonized, I realized from a comment above that we all get pensions from a DB plan. One is called Social Security. And furthermore, I’ve seen DB plans demonized as Ponzi Schemes……isn’t that what your Social Security is? Aren’t those still working paying your benefit each month after you finish collecting the part you contributed? No, SS doesn’t pay as much, but than again with higher salaries, there should’ve been lots to invest to complement SS.

Comment by Anonymous Wednesday, Jan 7, 15 @ 2:50 pm
Anotheretiree, if an ERI were offered, the door would not hit my tush on the way out. It is absolutely miserable to be a State employee these days.

Comment by PolPal56 Wednesday, Jan 7, 15 @ 2:54 pm
RNUG,

Yes and no. You can pass a law mandating the payments be made that is binding on a future legilature; BUT the future legislature can toss out the law and free themself, thus the preference for a constitutional ammendment.

Comment by Ghost Wednesday, Jan 7, 15 @ 2:58 pm
Right on Annonymous….also for those who want to demonize Social Security as a Ponzi scheme they need to read some history books about what it was like for the working man before Social Security happened. I don’t think anyone wants that day back. Also just because we have some savings in a 401K it most likely won’t put us in the economic class of the 1%. When the 2009 collapse happened a group of economists were testifying to congress about pensions and they state the 401K was designed focused on the benefit of the investment company (this was why under 20% of 401Ks even have the option to put any savings into cash or more secure investments and are so heavily focused on stocks).

Comment by illilnifan Wednesday, Jan 7, 15 @ 3:00 pm
Well Duh!

Important Constitutional issues aside, the numbers didn’t work when IPI and AFP touted this idea, the numbers didn’t work when Rauner casually tossed it out as his “position”, and they don’t work now.

This panders to an ideological and political position that has yet to be thought through financially for Illinois.

Rauner’s “plan” would cost the state significant extra money at least for the first twenty or so years of implementation. Maybe for the very long term, the arithmetic might work.

Can we please have plans and budgets “blueprints” that meet the arithmetic challenge, some time soon?

Please!

Comment by walker Wednesday, Jan 7, 15 @ 3:11 pm
The Trib needed to talk to an actual economist to figure out that Rauner’s plan was a bunch of hooey? Well thank heavens they did their analysis in time for the voters to make an informed choice.

Fail.

Comment by 47th Ward Wednesday, Jan 7, 15 @ 3:29 pm
So how is this supposed to work? You will be under the previous defined benefit retirement plan for the first 20 years of your career, and then under a 401K for the last 15 years of your state employment career? That doesn’t make sense, plus it seem to violate the state constitution.

Comment by Rusty618 Wednesday, Jan 7, 15 @ 4:02 pm
The state of Michigan offers a DC and a DB pension plan depending on when you were hired.

Comment by Emily Booth Wednesday, Jan 7, 15 @ 4:33 pm
The reason the constitution has a pension clause —-

Prior to 1970 Illinois courts had ruled that in a mandatory public pension plan the “rights” created were simply a gratuity.

Comment by Bigtwich Wednesday, Jan 7, 15 @ 5:01 pm
- Rusty618 - Wednesday, Jan 7, 15 @ 4:02 pm:

Such a forced change to existing employees would definitely violate the State Constitution. I expect the ISC to make that crystal clear to the political class sometime this summer.

Comment by RNUG Wednesday, Jan 7, 15 @ 5:51 pm
- Bigtwich - Wednesday, Jan 7, 15 @ 5:01 pm:

The underfunding (about 40% at the time) also had a bit to do with it.

Comment by RNUG Wednesday, Jan 7, 15 @ 5:57 pm
Late to the party, but just an observation. After reading all the comments on this thread (cordial, well thought out analysis of the monetary costs or gains, coming from all points of view), I decided to click on the link to read the full article arcthe Trib’s website. The mistake I made was clicking on the comments board. I would say that reading what was posted there was comical, except the level of hate and anger of those folks is almost scary. I guess if facts confuse you, you can always post your venom anonymously on a newspapers comments page…

Comment by Roadiepig Wednesday, Jan 7, 15 @ 9:18 pm
First post here but read this all the time. I am wondering if all the new people Rauner hires fall into the tier 2 plan or do they get something different?

Comment by loyalfan Wednesday, Jan 7, 15 @ 9:42 pm
To loyalfan@ 9:42 pm:

I think the answer to your question is yes, his new hires will be in the tier 2 plan, and the same for new teachers, university workers, etc…

Comment by Enviro Wednesday, Jan 7, 15 @ 10:24 pm
- loyalfan - Wednesday, Jan 7, 15 @ 9:42 pm:

- Enviro - Wednesday, Jan 7, 15 @ 10:24 pm:

Mostly likely Tier II but maybe not. If the person is a NEW hire to “state” employment, then they would be placed on Tier II under the applicable system. HOWEVER, if the person had previous creditable service in any of the 5 “state” pension systems PRIOR to 1/1/2011, they would be considered Tier I. This happened to a friend who was hired by the State after Tier II took effect since their first (and short) creditable service was decades earlier.

Comment by RNUG Wednesday, Jan 7, 15 @ 11:09 pm